The Sensex and the Nifty surged strongly on Tuesday, enthused by the strong show by the BJP in the recent Assembly elections. This has helped the Indian benchmark indices outperform other global benchmark indices in both developed as well as developing markets.

The Sensex and Nifty have emerged as the top gainers in 2017, with 10.5 and 10.9 per cent gains respectively. Indices from developed markets — Dow Jones Industrial Average, DAX and FTSE registered gains of 5.7, 4.4 and 3.1 per cent, respectively, while the emerging market indices — Bovespa, Shanghai Composite and JSE were up by 8.8, 4.4 and 2.2 per cent, respectively.

Russia (RTS) index registered a loss of 11.6 per cent during the period.

Domestic market has been buoyant since the beginning of this calendar as macro data and company earnings showed that demonetisation has not had too great an impact on the formal sector. Indices of developed countries have, however, been rather subdued due to various factors including expectation of another rate hike by the US Federal Reserve in March and negative fallout of Brexit. Emerging markets, especially those dependent on commodity, have put up a muted show due to the halt in commodity price-rally this year.

Liquidity prop

The rally so far has been driven by liquidity from foreign and domestic investors. Since the beginning of January, FPIs have invested ₹19,033 crore in domestic equities.

After being net sellers in the domestic equity markets for four consecutive months in the period ended January ’17, foreign investors turned net buyers and bought a net ₹10,485 crore in February. They have remained net buyers in March as well and have bought equities worth ₹8,595 crore so far. Domestic mutual funds, flush with funds, thanks to demonetisation, have pumped in around ₹6,851 crore so far this year.

At higher PE

Current valuation of Indian stocks, however, appears pricier when compared to their global counterparts. The Sensex is currently trading at trailing 12 month price earning multiple of 21.4 times, according to Bloomberg . This is more expensive than the Shanghai Composite Index that trades at 18 times trailing earnings.

Other indices such as the Singapore’s Straits Times Index, the Hang Seng, Germany’s DAX and UK’s FTSE are also trading at far lower multiples. Only the Dow and the S&P 500 of the US appear as pricey as the Indian benchmarks at this juncture.

comment COMMENT NOW